Capital Maintenance Doctrine for Developments †MyAssignmenthelp

Question: Discuss about theCapital Maintenance Doctrine for Developments. Answer: History of the Doctrine The doctrine of capital maintenance was originally developed during the mid-19th Century. IT was developed in the United Kingdom. The concept recommends that a company should receive proper payment for its shares but cannot repay it to the shareholder. In the past, the doctrine was applied more commonly among various nations. However, nowadays, it has become less relevant and is not applied often. Profoundly, this can be attributed to the fact that most companies today issue a small share capital to its members. Another explanation for the dwindling relevance of the doctrine can be made derived from the fact that most companies today consider the principle as sophisticated and unnecessarily complicated (Kaplan, n.d.). For this reason, various countries have restructured their Capital maintenance rules to suit the particular needs of their companies. Fundamentally, the doctrine of capital maintenance has grown over the years through a series of applications and interpretations in courts of law throughout the world. One perfect example of a case law in that applies this doctrine is Trevor v Whitworth (Hannignan, 2012). In this case, a firm indulged in its own buyout. As a result, during its liquidation, one shareholder applied to the court to be refunded the money owed to him by the company after the buyout. While the court held that he should be reimbursed his money, the House of Lords held that the purchase of the company by its members was ultra vires (Islam, 2013). In this case, the House of Lords insisted that it was unlawful to refund the shareholders without the issuance of a proper authorization of reduction of capital by the court. Benefits of the Doctrine The doctrine is beneficial in its application because it offers protection to the rights of the firms creditors. Primarily, it safeguards the capital of creditors lent to the firm for purposes of business activity. Additionally, this principle also protects the rights of shareholders, especially the minority shareholders by ensuring lawful usage of the funds of the organization. Exceptions to the Doctrine There are various exceptions to the doctrine. In England, for instance, there are exceptions under which the companys capital can be reduced. Fundamentally, the CA 2008 permits private firms to reduce their capital to their capital through a special resolution by members which is reinforced by a written statement of solvency by all its directors (Hannigan, 2012). Reference List Capital maintenance. Kaplan Financial Knowledge Bank, [online]. Available at https://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Capital%20maintenance.aspx [Accessed 21 May 2017]. Hannigan, B., 2012. The doctrine of capital maintenance. Oxford Index, [online] (Last updated June 2014). Available at https://oxfordindex.oup.com/view/10.1093/he/9780199608027.003.0020 [Accessed 21 May 2017]. Islam, S., 2013. The Doctrine of Capital Maintenance and its Statutory Developments: An Analysis. The Northern University Journal of Law, 4, pp. 47-55.